Woolworths and Coles - Bread, Milk, and Banking?

Share Centre Review: Metcash Food & Grocery Supermarkets CEO, Fergus Collins, has warned of the detrimental effects to supermarket competition, and potentially to the Australian economy, should Woolworths and Coles be allowed hold a banking licence and offer drastically discounted financial services, including personal loans, every day banking and mortgages.

Speaking at Metcashs IGA supermarket convention on the Gold Coast, Mr Collins told Fairfax Media "I dont know where you stop these guys. How big do they need to get? How much market power and how many markets can they influence?".

Mr Collins also spoke regarding the inconsistent planning laws that have seen Woolworths and Coles gain favourable treatment when it comes to rezoning, allowing them to establish new stores in areas where locals were already saturated with retailers, pointing out cases throughout Australia, and more specifically in Sydneys north shore.

Share Centre notes that concerns are linked back to the fuel discount shopper docket scheme. After the Australian Competition and Consumer Commission was inundated with complaints from independent retailers who were claiming the scheme was unfairly strengthening their market operations.

These complaints forced the ACCC to review the situation, and impose a 4 cents per litre cap on the scheme. The ACCC warning the food giants that they would be set to face legal action due to the big discounts having a negative effect on the petrol industry and that it could likely drive petrol prices higher over time.

Not unlike the fuel discount debacle, analysts at the Share Centre agree with Mr Collins that the heavily discounted financial services may threaten competition within the sector should the ACCC fail to monitor their actions closely. Mr Collins said "The more competition you have and the more competition there is on a level playing field I think it is better for the country as a whole."

Share Centre reviews that Metcash has an annual turnover of more than $9 billion but due to underperformance at the hands of the Woolworths and Coles price wars, Mr Collins is leading a significant restructure of Metcashs supermarket division, in order to regain the lost market share.

"I think when you have two players in the market place that have such dominance as those two, logic tells you that in the future its going to be detrimental to not just the consumer but supplier base of the country as well".

Analysts at the Share Centre noted a 5 year review of Wesfarmers (WES) and Woolworths (WOW) share price performance showed strong growth for both companies outperforming the market, while shares in Metcash (MTS) have drifted lower over the same period.

Shares in Metcash have almost halved in value over the last 5 years moving from a price of around $4.70 down to current levels of $2.72. For the most part the majority of this decline has happened over the last year.

However the Share Centre also pointed out that annual dividend yields for Metcash have averaged about 6.80% while Wesfarmers have averaged 4.30% and Woolworths have averaged just 3.80%.

Andrew Piper is the Senior Business Editor at the share centre australia. 15 years of journalism revolving around global financial markets has provided Andrew with a unique understanding of the industry.